Armenia Update

Armenia Update

Order Code RS20812
Updated September 3, 2004
CRS Report for Congress
Received through the CRS Web
Armenia Update
name redacted
Specialist in Middle Eastern Affairs
Foreign Affairs, Defense, and Trade Division
Summary
Armenia has experienced domestic political turmoil since independence. Since
political assassinations in October 1999, President Robert Kocharian has outmaneuvered
his opponents and secured his March 2003 re-election amid accusations of electoral
irregularities. The economy is rebounding, except a majority of the people remain poor.
A cease fire holds in the war with Azerbaijan over the region of Nagorno-Karabakh. In
general, Armenia relies on Russia for security and on the United States for economic
aid. Its relations with neighboring Iran are good, but those with Turkey are troubled.
Congress has been generous to Armenia. This report will be updated as developments
warrant. See also CRS Issue Brief IB95024, Armenia, Azerbaijan, and Georgia:
Political Developments and Implications for U.S. Interests, by (name redacted), updated
regularly.
Politics
Armenia’s first decade of independence was turbulent, and the late 1990s were
especially unsettled. In February 1998, President Levon Ter-Petrosyan resigned. His
Prime Minister, Defense Minister, and National Security Adviser reportedly forced him
to leave over his willingness to compromise with Azerbaijan over the Nagorno-Karabakh
conflict. Power politics, personal differences, clan rivalries, and/or mercenary interests
also may have prompted his departure in less transparent ways. Prime Minister Robert
Kocharian succeeded Ter-Petrosyan and won election as president in March 1998.
For the May 1999 parliamentary election, strongman Defense Minister Vazgen
Sarkisian and charismatic former Soviet-era Communist Party boss Karen Demirchian
allied as the Unity bloc and won a plurality of seats. Sarkisian became Prime Minister
and Demirchian, Speaker of Parliament. These two large personalities were expected to
neutralize Kocharian’s power. That possibility was lost in October 1999, however, when
Sarkisian, Demirchian, and six others were assassinated.
By May 2000, Kocharian reassertively appointed several Armenian Revolutionary
Federation (ARF/Dashnaks) cabinet members and named Republican Party leader
Congressional Research Service ˜ The Library of Congress

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Andranik Markarian as Prime Minister.1 Antipathy to cooperating with Kocharian, whom
some opponents blame for the 1999 assassinations, fractionalized parties and contributed
to the dissolution of the Unity bloc. New parties or alliances developed from those splits
and from mergers of parties or parliamentary groups.

There was no common opposition candidate in the February 19, 2003, presidential
election. People’s Party of Armenia leader Stepan Demirchian (Karen’s son), National
Unity Party leader Artashes Geghamian, and several others ran against Kocharian. The
president won a March 5 run-off against Demirchian. International observers found that
both rounds “fell short of international standards” for democratic elections.2 The
opposition protested between the two rounds of votes, and activists were arrested; more
demonstrations and arrests followed the run-off. Several opposition parties formed the
Justice Alliance to compete in the May 25 parliamentary election. Pro-Kocharian parties
ran independently and won a majority of the seats. Observers found that the “elections
show improvement over the presidential voting, nevertheless, they fail to meet
international standards.” The Prime Minister Markarian of the Republican Party formed
a coalition government with the ARF and Country of Law parties.
The weak, ineffective, hydra-headed opposition has held peaceful protest rallies and
is boycotting parliament to demand a national referendum of confidence in Kocharian. It
has no other distinct political program. In response to rallies in April 2004, the authorities
moved against the opposition with administrative detentions, raids on party offices,
prosecutions, road restrictions, attacks on journalists, and use of force to disperse
protesters. The Parliamentary Assembly of the Council of Europe, the Organization for
Security and Cooperation in Europe (OSCE), and international human rights groups
sharply criticized these actions. In February, the U.S. State Department’s annual human
rights report had observed that the government’s record remained poor.3 After the April
events, the opposition appeared to lose steam.
Kocharian is from Nagorno-Karabakh and has no personal political base in Armenia.
His closest ally is Defense Minister Serzh Sarkisian, also from Karabakh; together they
hold the real power in the country and exercise it outside of political institutions. They
possess a monopoly of physical force and control of much of the broadcast media.4
Economic and Social Conditions
Armenia has made substantial progress in the transition from a Soviet-era planned
economy to a market economy. The government has privatized many state industries
1 Founded in 1890, the ARF/Dashnaks led independent Armenia from 1918-20 and, during the
Soviet era, became a major presence in the Armenian diaspora. It is an international as well as
domestic organization and presumably has pretensions to lead Armenia once again.
2 International Election Observation Mission, Statements of Preliminary Findings and
Conclusions, [http://www.osce.org/odihr].
3 U.S. State Department, Country Reports on Human Rights Practices, Armenia, February 2004,
[http://www.state.gov/g/drl/rls/hrrpt/2003/27823.htm].
4 The lack of broadcasting diversity and limits on freedom of expression arouse concern. “OSCE
Chairmanship Concerned about Media Situation in Armenia,” ArmenPress, July 28, 2003.

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despite political opposition and weak demand. Some sales have been controversial, such
as those of the national cognac factory to a French company for a questionable price, of
90% of the national telephone company with a 15-year monopoly over the
telecommunications market to the Greek OTE, of the national power grid to a little
known, British-registered offshore company, and of much of the country’s power-
generating capacity to Russia’s state-owned power utility.5
In 1994, the government launched
an economic reform program with the aid
Basic Facts
Population: 3.2
million (2001)*
of the International Monetary Fund
GDP growth rat e:
13.9% (2003 est.)
(IMF) that resulted in positive growth
GDP per capita:
$3900 (2003 est.)
from 1995 to 1998, but political
Inflation: 4.3%
(2003)
instability contributed to declines in
Unemployment:
(official) 20% (2001)
1999 and 2000. There has been decisive
External Debt:
$905 million (2002)
Imports/Partners: natural gas, petroleum,
recovery since 2001, and the gross
tobacco products, foodstuffs/U.S., Russia,
domestic product (GDP) is expected to
Belgium, Israel, Iran
reach pre-independence levels by 2005.
Exports/Partners: diamonds, mineral products,
Economic growth has primarily
foodstuffs, energy/Belgium, Israel, Russia, Iran,
benefitted a privileged minority, and
U.S.
Sources: CIA, The World Factbook 2003, Armenian
about 50% of the people remain below
government; *see footnote 6 below.
the poverty line. Hopelessness and
apathy have prompted very high
emigration and a decline in population.6
The IMF and World Bank are emphasizing poverty reduction, social programs, reforms
in the tax structure, and combating corruption. Government expenditures routinely
exceed revenues by about 40%. As a result, Armenia depends on foreign aid, remittances
from Armenians abroad, and donations from the Armenian diaspora.
Armenia has a cumbersome government bureaucracy, deficiencies in rule of law, and
endemic corruption,7 which discourage investment. In addition, during the height of the
Karabakh conflict, Turkey and Azerbaijan imposed blockades. To mitigate the effects of
the blockades, Armenia emphasizes industries that depend less on transport, such as high
technology and diamond cutting, and relies on outlets via Iran and Georgia.
5 “Government Seals Power Grid Sale, Upsets Western Donors,” RFE/RL Armenia Report,
August 26, 2002; “Armenian Opposition Slams Energy Privatization,” RFE/RL Armenia Report,
August 28, 2002; Anna Hakobyan, “ Russia: Armenia’s Light and Protection,” Transitions On
Line, November 7, 2003.
6 Since 1991, one million people have emigrated from Armenia, according to the chief of
Armenia’s Department of Migration and Refugees, PanArmenian.Net, December 27, 2003. This
decline is not reflected official population figures, which observers suggest are inflated to prevent
a drop in aid. Kim Iskyan, “East of the Oder: Why Can’t Armenia Be More Like Georgia,” Wall
Street Journal Europe, February 20, 2004.
7 Armenia ranks 78 out of 133 countries on Transparency International’s corruption perceptions
index issued on October 7, 2003.

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Security
War with Azerbaijan. The combat stage of the conflict over the sovereignty of the
predominantly Armenian-inhabited Nagorno-Karabakh region of Azerbaijan ended in a
May 1994 cease fire, with Armenians in control of Nagorno-Karabakh and a large swath
of adjacent Azerbaijani territory. Azerbaijan claims that Armenians occupy 20%of its
territory. The OSCE’s “Minsk Group” has sought to resolve the conflict peacefully. In
June 2001, U.S., French, and Russian Minsk Group co-chairs charged that the Armenian
and Azeri publics had not been prepared for the compromises needed for a settlement.
For example, all parties and groups in the Armenian parliament endorsed an April 27,
2001, statement of principles calling for the unification of Armenia with Karabakh or
international confirmation of the latter’s independent status; the participation of Karabakh
authorities in drafting the final settlement; and a sufficient common border of Armenia
and Karabakh to guarantee the security of Karabakh. The Minsk Group mediators visit
the region for consultations, and the Armenian and Azeri presidents and foreign ministers
hold apparently cordial discussions. Yet, no progress toward a settlement has been made.
Relations with Russia. Armenia has generally relied on Russia for security
assistance and on the United States for economic aid, although the distinction is
diminishing. Armenia signed the Commonwealth of Independent States (CIS) Security
Treaty with other former Soviet republics and joined NATO’s Partnership for Peace (PfP).
On August 29, 1997, Armenia and Russia signed a Treaty of Friendship and Cooperation,
which both governments characterized as a strategic partnership, and then President Ter-
Petrosyan said provided “elements of an alliance.” Russia has 12,000 to 15,000 troops
at two military bases in Armenia, where it deploys 18 to 20 MiG-29 fighter planes and S-
300 ground-to-air missiles. Russia and Armenia formed a joint air defense system on
Armenia’s borders with Turkey and Iran and joint army units to counter common regional
security threats and terrorism. Armenian and Russian officials insist that their cooperation
is not directed against any third party. However, the Commander in Chief of the Russian
Air Force said that the S-300s were in Armenia to protect it and the CIS from Turkey and
NATO, and Armenian officials have repeatedly stated that Russian troops are needed
because of a Turkish threat.8
Russia is very active in the Armenian economy. In September 2001, Russia and
Armenia signed a 10-year economic cooperation agreement, which both sides said could
lead to the economic integration of their countries. To this end, Russia forgave Armenia’s
post-Soviet debt of $98 million in exchange for five Armenian state-owned military-
industrial enterprises. Armenia receives 80% of its energy resources, mainly nuclear fuel
and natural gas, from Russia. In 2003, Russia took over financial management of the
Metsamor nuclear power station, and Armenia transferred six hydroelectric plants to
Russia to pay Metsamor’s debts to Russian fuel suppliers.9
8 “Russian Border Guards Will Stay in Armenia as long as Turkish Threat not Eliminated,” Azg
Daily, January 29, 2001. Address of Foreign Minister Oskanian to the Yale Conference on the
New Silk Road, September 19, 2002.
9 The European Union has offered Armenia $100 million to close the reactor, which it views as
unsafe. Yerevan will not agree until it secures an alternative source for cheap energy.

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Other Foreign Policy Issues
Armenia has good relations with Iran, relying on its neighbor for a transportation
outlet and as a major trading partner. The two countries have plans for a tunnel and
bridge, a natural gas pipeline, and a hydroelectric power station. Armenia also has good
relations with Georgia, with which it signed a Treaty of Friendship, Cooperation, and
Mutual Security in October 2001 and through which it sends 90% of its trade. Armenia
is concerned about Georgia’s military ties to Turkey and wants it to reopen the rail line
between Armenia and Russia via Abhazia, while Georgia mistrusts Armenia’s ties with
Russia. Some ARF members demand autonomy for Georgia’s largely Armenia- populated
Javakhetia province, but Kocharian agrees with the Georgian government that problems
there would best be solved by improving socioeconomic conditions.
Armenia’s relations with Turkey are uneasy. Turkey recognized Armenia’s
independence, but never established diplomatic relations. Turkey sympathizes with
Azerbaijan, an ethnic Turkic ally, in the dispute over Nagorno-Karabakh and calls for
Armenia’s withdrawal from Azeri territory before establishing ties. Turkey also wants
Armenia to abandon its campaign for international recognition of what Armenians say
was their national genocide at the hands of the Ottoman Empire in the early part of the
20th century. Moreover, Turkey insists that Armenia disavow claims to territory promised
to it under the never ratified 1919 Treaty of Sevres and “lost lands” ceded by Russia to
the Ottoman Empire in 1921. Armenia calls for relations with Turkey to be established
“without preconditions,” i.e., without regard to other issues. Some efforts have been
made to improve relations. An independent, unofficial Turkish-Armenian Reconciliation
Commission (TARC) formed in July 2001 promoted mutual understanding and goodwill,
but some diaspora Armenians argued that it undermined their efforts to gain recognition
of the genocide, and TARC disbanded in April 2004. Armenia has a diplomat accredited
to the Black Sea Economic Cooperation Group in Turkey; the two countries’ foreign
ministers meet occasionally; and Turkish soldiers participated in a NATO exercise in
Armenia. However, Kocharian did not attend the June 2004 NATO summit in Istanbul
because progress toward normalization of relations has not been made. Foreign Minister
Oskanian calls for opening border trade and railroads even without diplomatic relations.
The issue divides the government: the ARF objects to dialogue with Turkey before it
acknowledges the genocide, while its coalition partners see economic benefits from
opening the border.
U.S. Policy
The United States recognized Armenia’s independence in December 1991, and
rapidly established diplomatic relations. U.S. interests in Armenia include security,
economic and political reform, and regional stability.10 The State Department expressed
disappointment in the March 2003 presidential election and criticized the Armenian
authorities’ heavy-handed treatment of the opposition in April 2004, calling on all sides
to prevent violence. Since 1997, the United States has co-chaired the OSCE Minsk Group
mediating the Karabakh conflict. A U.S. Special Envoy for the Newly Independent
States and Nagorno-Karabakh fulfills U.S. responsibilities as part of the Group. The
10 Assistant Secretary of State for European Affairs Elizabeth Jones statement to an Armenian-
American conference, April 19, 2004.

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United States has sought to reconcile Armenia and Turkey by, among other efforts,
supporting the TARC and favoring the opening of the land border. In October 2003,
Armenia offered to send military doctors, demining specialists, and trucks to Iraq;
deployment may take place this year.
Congress has granted approximately $1.55 billion in economic aid to Armenia from
1992-2003.11 P.L. 108-199 (H.R. 2800), January 23, 2004, provided $75 million in
economic aid, $2.5 million in military aid, and $900,000 in military education funding for
Armenia. H.R. 4818, the Foreign Operations Appropriations Act for FY2005, passed in
the House on July 15, 2004, would provide $75 million in economic aid for Armenia.
The accompanying H.Rept. 109-599, July 13, 2004, recommends that Armenia receive
$5 million in military aid equal to that for Azerbaijan. Armenia also has been selected for
the Millennium Challenge program.12 A U.S.-Armenia Task Force meets semiannually
to ensure better use of U.S. aid and to improve commercial ties.
Armenia and Armenian-Americans support Section 907 of the FREEDOM Support
Act (P.L. 102-511, October 24, 1992) to restrict aid to Azerbaijan until it takes
demonstrable steps to lift blockades on Armenia and Nagorno-Karabakh. Section 907 has
been in all succeeding foreign operations appropriations bills. P.L. 107-115, January 10,
2002 provided the President authority to waive 907 in the interest of national security, and
he has exercised the authority twice, with U.S. officials maintaining that the waiver has
cleared the way to deepen security cooperation with Armenia. The United States funded
a demining center in Armenia and is helping it to develop professional military education,
upgrade communication facilities, and expand peacekeeping capabilities. In February
2004, 34 Armenian soldiers joined a Greek battalion in the NATO-led Kosovo Force
(KFOR) as the first Armenian peacekeeping deployment.
The United States understands the reasons for Armenia’s good relations with Iran,
but wants Armenia to help deny Iran the means to acquire weapons of mass destruction
(WMD). On May 9, 2002, the Administration imposed sanctions under the Iran
Nonproliferation Act of 2000, P.L. 106-178, March 14, 2000, on an Armenian company
and its owner for transferring controlled items to Iran that could benefit its development
of WMD. The sanctions do not extend to the Armenian government.
Members have repeatedly introduced resolutions to recognize the Armenian
genocide. H.Res. 193 (H.Rept. 108-130, May 22, 2003) and S.Res. 164 (introduced on
June 10, 2003) would reaffirm support for the Genocide Convention, noting the
importance of ensuring that lessons of past genocides, including the Armenian, be used
to prevent future genocides. The Administration opposes the reference to the Armenian
genocide because it could complicate U.S. efforts in the Caucasus and to bring about
Turkish-Armenian reconciliation. House Republican leaders have said that H.Res. 193
will not reach the floor. H.R. 3323, introduced on October 16, 2003, and S. 2344,
introduced on April 4, 2004, the Armenian Victims Insurance Fairness Act, would require
insurance companies to reveal details of policies of individuals domiciled in the territory
and at the time of the Armenian genocide. Neither bill has been considered in committee.
11 For details about assistance programs, see [http://www.usa.am/assistance].
12 For more on this program, see CRS Report RL32427, Millennium Challenge Account:
Implications of a New U.S. Foreign Aid Initiative, by (name redacted).

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